The two charts below provide an important visual depiction of the trends in North Carolina state tax rates. Specifically, we can see from the first chart how the state’s corporate income tax rates are dropping dramatically. After peaking at 7.75% in the mid-1990’s, the rate held steady at 6.9% from 2000 to 2013. And as noted, for six of the years between 1991 and 2010, there was an additional “surcharge” tacked on to the corporate tax – essentially a tax on top of a tax. Thanks to the 2013 tax reform, however, the rate has dropped to 6%, 5% and 4% in the last three years, respectively, and is slated to drop again to 3% in 2017. The 3% rate will be lowest in the country among states that levy such a tax, according to the Tax Foundation, and will provide significant incentive for job creators to locate in NC to spur job creation and growth.
The second chart illustrates the state’s personal income tax rates during the 21st century. You can see that for 12 of the 13 years from 2001 to 2013 the state’s personal income tax rate topped out over 8 percent. Moreover, a tax “surcharge” was tacked on in 2009 and 2010. These tax rates were among the ten highest in the nation, and highest in the SE region. Thankfully, the 2013 tax reforms significantly changed that, dropping to a flat rate of 5.8% in 2014 and further cuts last year scheduling the rate to fall to 5.499% in 2017. This will cause NC to have the lowest personal income tax rates among its neighbors, and improve it nationally to the middle of the pack. This not only provides significant relief for workers, but is also crucial for small business development – as most small businesses file taxes via the personal income tax code.
These charts certainly illustrate a stark contrast between the former liberal leadership in Raleigh compared to the more conservative leaders in the state capital the last several years. And to further drive home the point, you can see this article detailing a lengthy list of significant tax increases passed between 1985 and 2010.
For a comprehensive overview of North Carolina budget & tax policy since 1985, read the Civitas Institute’s Public Policy Series.